Angola

2008 Investment Climate Statement - Angola

Openness to Foreign Investment

Angola offers both high returns and great risks to investors and exporters. Rising oil and diamond production, along with intensive infrastructure rebuilding following the 2002 end of the civil war offer immense business opportunities. In addition, economists predict the Angolan economy will continue double-digit growth rates for at least the next five years. The business environment, however, is one of the most difficult in the world. Investors must factor in pervasive corruption, an under-developed financial system, and high on-the-ground costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate imports.

Angola declares that it welcomes investment and has created the National Private Investment Agency (ANIP) to help investors and facilitate new investment under the 2003 Basic Law for Private Investment (Law 11/03). Law 11/03 lays out the general parameters, benefits, and obligations for foreign investors, and provides for equal treatment, offers fiscal and custom incentives, simplifies the investment application process and sets capital requirements. However, investments in the energy, diamond, telecommunication and financial sectors continue to be governed by legislation specific to each sector. Decrees and regulations issued by other government ministries, may take precedence over the 2003 Law. Present or future rules may erode or negate investment protections offered by the 2003 Investment Law. The 2003 investment law is part of an overall effort by the GRA to create a more investor-friendly environment. Other legislative measures include the Company Law and the Voluntary Arbitration Law. The Company Law consolidates the requirements for incorporation, and the Voluntary Arbitration Law provides a legal framework for nonjudicial resolution of disputes.

ANIP must approve foreign investments of $100,000 to $5 million. The Council of Ministers must approve investments over $5 million, as well as any investment that requires a concession (such as oil or mining) or involves the participation of a parastatal. After obtaining contract approval from ANIP or the Council of Ministers, the investor must register the company, publish the company’s statutes in the official gazette (Diário da República), obtain a business license, and register with the fiscal authorities. Foreign investments under $100,000 do not require ANIP approval.

Obtaining the proper permits and business licenses to operate in Angola can be time-consuming. The World Bank Doing Business in 2008 report identified Angola as the most time-consuming country out of 175 countries surveyed to establish a business, requiring 124 days compared with a regional average of 63 days. Since 2003, the “Guiché Único,” or one-stop shop, led by the Ministry of Justice, has brought representatives of various ministries together in one place in an effort to simplify and speed up registration. However, Justice lacks authority over the other ministries, and processing remains slow. Nonetheless, the Guiché succeeding in issuing 320 new business licenses in 2006, more than double the 151 issued in 2005. (Figures for 2007 were not available in early 2008.) With the assistance from the Portuguese Justice Ministry, Angola hopes to reorganize the Guiché and increase its efficiency.

While Angola does not formally discriminate against foreign investment, companies familiar with the Angola’s business environment often hold an advantage. The Promotion of Angolan Private Entrepreneurs Law gives Angolan-owned companies preferential treatment in tendering for goods, services and public works contracts with the GRA.

In December 2005, the government appointed a commission to oversee the creation of a stock exchange, the “Bolsa de Valores.” The commission is reportedly still at work and announced in December 2007 that it hoped the stock exchange would start operations in the first quarter of 2008. (The commission issued a similar announcement at the end of 2006.) The exchange should provide equal access to foreign and domestic investors.

Economic and financial reform measures in recent years have improved local access to foreign exchange and facilitated remittance and transfer of funds. Since 2004, the Central Bank has loosened controls and bank service time now has been reduced from several months to a matter of hours. While Investment Law 11/03 guarantees the repatriation of profits for officially approved foreign investment, and investors can remit funds through local commercial banks, under Central Bank Order 4/2003 the Bank must authorize the repatriation of profits and dividends exceeding $100,000. In addition, the Central Bank can temporarily suspend repatriation of dividends or impose repatriation in installments should immediate repatriation adversely effect on the country's balance of payments.

The government of Angola is unlikely to directly expropriate the assets of foreign investors. However, during 2007, the GRA cancelled quarrying permits for several companies, one American-owned, without compensation or credible explanation. Changes in legislation and enforcement of existing laws pose some risk of reducing company profits. This is especially true in the petroleum sector, which has been subjected to local content regulations, the 2004 petroleum laws, and the terms of individual production sharing agreements. The legislative process is generally secretive and closed to public review. Additionally, vague provisions in some laws permit various interpretations.

Angola's legal and judicial system lacks capacity and is inefficient. Legal fees are high, and most businesses avoid taking commercial disputes to court. The World Bank’s “Doing Business in 2008” survey estimates that commercial contract enforcement, measured by the amount of time elapsed between filing of a complaint and receipt of restitution, takes 1,011 days in Angola. The Voluntary Arbitration Law provides a general legal framework for faster, non-judicial arbitration of disputes, except for cases expressly excluded by the law. Angola is not a signatory to the United Nations’ New York Convention, the World Bank’s International Center for Settlement of Investment Disputes (ICSID), or the United Nations’ Convention on the International Sale of Goods (CISG). Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides dispute settlement assistance. Past MIGA efforts to resolve foreign investment disputes have proven successful, but no cases involving U.S. companies were referred to MIGA in 2007. The Angolan and U.S. Governments are discussing entering into a Trade and Investment Framework Agreement, which should lead, in due course, to formalization of a Bilateral Investment Treaty.

Angola's investment law gives foreign and domestic investors equal access to investment incentives. Incentives for high priority sectors such as agriculture, manufacturing, energy, water and housing include exemption from industrial and capital gains taxes for up to 15 years and from customs duties for up to 6 years. Many foreign companies now operating in Angola enjoy some form of tax or duty waiver. Companies should apply for such incentives when submitting their investment application to ANIP. ANIP and other government ministries are willing to accommodate large foreign investments.

Angola imposes or enforces few specific performance requirements on foreign investments. The government encourages "Angolanization" of companies and greater use of Angolan suppliers of goods and services. Decrees 5/95 and 6/01 limit expatriate staffing of local companies set up in Angola by national or foreign investors to 30% of the workforce, and require Angolan and expatriate staff with the same jobs and responsibilities to receive the same salaries. International oil companies are working with the government on a new local content initiative to establish more explicit sourcing requirements for the petroleum sector. Oil service companies may meet these requirements by partnering with local Angolan firms, hiring more Angolan employees, or substituting locally products for imports. Foreign investors can set up fully-owned subsidiaries in many sectors, and frequently are encouraged, but not required, to take on local partners.

In the oil and diamond sectors, contracts spell out the investment commitments of companies for infrastructure and social services to benefit local communities. Examples include constructing schools, equipping hospitals, or funding micro-credit programs. The government also encourages downstream investments in facilities such as refineries and diamond processing.

A July 2004 rule requires an Environmental Impact Study for investments in petroleum, mining, road construction or power stations. The Ministry of Urbanism and Environment must approve all Environmental Impact Studies before projects can be licensed.

Foreign and domestic private entities have the right to establish, acquire, and dispose of interests in business enterprises. Public enterprises hold some practical advantages in access to markets and credit. All non-urban and some urban land is ultimately under State ownership, but can be leased to private entities. Pending regulations to implement the 2004 land tenure law should clarify land use and ownership. Oil and diamond production and exploration rights are granted for limited periods of time and only as partnerships between private companies and the resource owners, Sonangol and Endiama. Diamond exploration concessions normally last three to five years, with the possibility of extension. A diamond mines negotiate its contract following a viable discovery. New oil exploration concessions normally last for ten years. The government allows and encourages public-private partnerships and participation of private investors in public utilities like electricity and water. Private companies have concessions to operate hydroelectric dams and shipping terminals in the Port of Luanda.

Angola has basic intellectual property rights protection. Angola’s National Assembly adopted the Paris Convention for the Protection of Industrial Intellectual Property in August 2005, incorporating both the 1979 text and the patent cooperation treaty concluded in 1970 as amended in 1979 and 1984. The Ministry of Industry administers intellectual property rights for trademarks, patents, and designs under the Industrial Property Law 3/92. The Ministry of Culture regulates authorship, literary, and artistic rights under the Copyright Law 4/90. No court cases involving U.S. intellectual property have tested the strength of these laws. Angola is a member of the World Intellectual Property Organization (WIPO) and follows international patent classifications of patents, products and services to identify and codify requests for patents and trademark registration. The fee for each patent petition varies by category.

real estate:

Angola’s Law on Land and Urban Planning affirms that all land ultimately belongs to the State, but permits virtually private ownership of most urban and some non-urban land under long-term renewable leases from the Angolan government. However, registering property takes 11 months, according top the World Bank’s “doing Business” survey, with fees reaching 11 percent of property value. Owners must also wait five years after purchase before selling land. Implementing regulations, when written, should define different forms of land use, including commercial use, traditional communal use, leasing, and private homes.

The government is making progress in establishing clearer written regulations. Traditionally, the regulatory system has been complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due largely to lack of capacity. The Angolan Communications Institute (INACOM), sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Since 2004, revised energy-sector licensing regulations have improved legal protection for investors in order to attract more private investment in electrical infrastructure, such as dams, power plants and distribution grids. A new banking supervision law has awaited National Assembly action since 2005.

Angola’s financial sector, though still underdeveloped, has grown rapidly. By December of 2007, total deposits exceeded $7 billion, up from $6.8 billion in 2006. Most banks focus their operations on short-term commission-related activities such as currency trading and trade finance. Foreign investors usually access credit overseas, and many local investors either self-finance or seek financing from non-Angolan banks and investment funds. Subsidized government loan programs to promote economic development are available only to majority-owned Angolan companies and on a very selective basis. Local businesses must take loans in kwanzas, the Angolan currency, though exceptions are granted.

Past triple-digit inflation caused a high level of dollarization in the economy and banking system, with 70% of banking assets held in dollars. Since the end of the civil war, the Central Bank has spent large sums on rebuilding trust in the kwanza, bringing inflation down to 12% in 2006 and 2007. The mandatory reserve requirement for non-government deposits, whether in kwanzas or foreign currency, is 15%. The Reserve requirement for government deposits is 100%, a measure that seriously limits the lending by state-owned banks.

Since 2003, new private banks, have been transforming a sector previously dominated by State-owned banks. Two of the Angola’s three largest banks are privately owned. As of late 2007, Angola had 17 commercial banks, only three of them state-owned. While every provincial capital has at least three bank branches, only 6% of the population uses banks, and few businesses even apply for loans. By mid-2007, credit to the private sector amounted to just 7.2 percent of GDP, while bank deposits totaled only 15.7 percent of GDP.

Banks have begun to offer more financial products. Auto loans and mortgages are increasingly available, as are 15-year mortgages at 8% interest. Unclear land titles and ill-defined property rights may, in some instances, complicate and lengthen the process of applying for a mortgage. In other financial services, three new insurance companies, Nossa Seguros, Global Seguros and Mundial began operations in 2006.

Banks have a low lending rate of 45% of deposits due to demand for collateral by banks in an environment without mechanisms for collateral, a weak judicial system, lack of credit histories and few street addresses. Banks profit from transactions, short-term trade financing, and investments in high-interest government bonds, and increasingly from loans for construction. In the past, state and state-affiliated companies enjoyed privileged access to loans, often at concessionary rates, leading to several bank failures. Currently, the non-performing loan rate is relatively low, reflecting conservative lending practices throughout the sector. Legislative changes and development in the banking sector are expected to produce widen availability of credit. The new land law should reduce confusion over property rights and help provide a source of collateral.

The Central Bank has developed a market for short-term bonds called "Títulos do Banco Central" and long-term bonds called “Obrigacões do Tesouro.” Most of these bonds are bought and held by local Angolan banks. The Obrigacões have maturities ranging from 1 to 7.5 years, whereas the Títulos have maturities of 91 to 182 days. For up-to-date information on current rates, see www.bna.ao. In 2007, the Ministry of Finance started issuing long-term debt with a US $400 million issuance to be used on Luanda’s drainage system and roads, and a $3.5 billion issue subscribed by a number of Angolan commercial banks.

In December 2005, the government announced plans to develop a stock market and appointed a commission to oversee its creation. The bourse had not opened as of the end of 2007. The government may privatize some state-owned companies and list them on the stock exchange. The state oil company SONANGOL and the state diamonds company ENDIAMA are expected to be listed on the stock exchange.

Below is a chart containing a list of commercial banks now operating. There is not yet enough information on VTB-Africa, the only Russian bank in Angola, to include it in the chart below.

Political violence is not a substantial risk in Angola. The oil-rich enclave of Cabinda has been generally quiet since the October 2006 accords between several rebel groups and the government. One independence group has denounced the accord, but poses little threat to foreign investors.

Improved governance, more effective rule of law, and less corruption are essential to lower investment risks and provide greater assurance to investors. Senior officials are widely seen as corrupt, and the government’s limited publication of accounting information fuels public suspicions. Since 2006, under pressure from the international community, the government made significant strides towards greater transparency by publishing financial information and preventing extra-budgetary expenditures. Angola is not a signatory to the OECD Convention on Combating Bribery but is a participant in the New Partnership for Africa’s Development (NEPAD), which and its Peer Review Mechanism on good governance and transparency. Angola’s government approved an Audit Court in 2000 to investigate misuse of public funds by public institutions. In the beginning of 2005, the Audit Court handed down its fourth embezzlement sentence and ordered government officials to return misappropriated funds, but the sentence appears not to have been imposed. IN 2006 and 2007, the Audit Court focused its attention on workshops on better management and public accountability.

Low civil service salaries and a proliferation of bureaucracy and regulations present opportunities for rent-seeking and tend to encourage corruption. Complicated procedures and long bureaucratic delays sometimes tempt investors to seek quicker service and approval by paying gratuities and facilitation fees. Transparency International's 2007 Corruption Perception Index (CPI) placed Angola at 147 out of 179 countries. The Heritage Foundation ranked Angola 149 out of 161 countries surveyed on its 2007 Index of Economic Freedom, and described Angola as “mostly unfree.”

Although Angola's public and private companies historically did not use transparent accounting systems consistent with international norms, with IMF encouragement, Angola has invited major international accounting firms to conduct regular audits of Angola’s largest public companies. The government approved an audit law in 2002 that sought to require audits for all “large” companies, but it has not yet been possible to enforce this rule due to the lack of a professional accounting oversight body. US firms operating in Angola are required to adhere to the Foreign Corrupt Practices Act.

Angola does not have a bilateral investment treaty or bilateral tax treaty with the United States. Angola has signed bilateral investment agreements with Italy, Germany, Portugal, South Africa, and the United Kingdom, but has not ratified or implemented any of these agreements. Angola ratified a bilateral investment agreement with Cape Verde in 2004. A list of current bilateral investment treaties and their status can be found at the United Nations Conference on Trade and Development (UNCTAD) website. The Angolan and U.S. Governments are discussing entering into a Trade and Investment Framework Agreement (TIFA), which should lead, in due course, to formalization of a bilateral Investment Treaty

The Overseas Private Investment Corporation (OPIC) provides investment insurance to projects in Angola, and U.S. investors can apply for OPIC insurance, including coverage under its Quick Cover program for projects in certain sectors valued at less than $50 million.

Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides insurance to foreign investors against certain risks such as expropriation, nonconvertibility, war or civil disturbance. MIGA also provides investment dispute resolution on a case-by-case basis.

Angola’s General Labor Law (Law No. 2/00) provides significant protection and benefits to workers. The law expands maternity and other leave and provides the right to strike and bargain collectively. The law spells out proper procedures for hiring workers. For work contracts of indefinite duration, the law provides for a basic probationary period of up to six months, during which the worker or employer can terminate the contract without notice or justification. After the probationary period ends, dismissed workers have the right to appeal to a Labor Court. Many employers prefer to reach a monetary settlement with workers when a dispute arises rather than bring cases before the Court. The World Bank Group’s 2008 Doing Business report placed the average cost of firing a worker in Angola at 58.5 weeks of wages..

The local labor force has limited technical skills, English language ability or managerial ability. Many employers invest heavily in educating and training their Angolan staff.

The government surveys the oil industry annually to enforce a requirement that oil companies hire seek qualified Angolan nationals to fill positions before requesting the government’s permission to hire expatriates. This rule also requires equal pay and benefits for equal work. Outside of the petroleum sector, Angolanization policies discourage bringing in expatriate labor. This has extended to delays in approving visas for technicians to visit for a few weeks.

The constitution grants the right to engage in union activities and labor strikes, but the government may intervene in labor disputes that affect national security, particularly strikes in the oil sector. Chevron employees struck in 2004 to demand equal pay for equivalent work but the strike collapsed when the government made its opposition clear.

Angola has no functioning foreign trade zones as of January 2008, although establishing such zones has been under discussion within the Governments.

In March 2003, Angola agreed to adhere to the SADC Free Trade Protocol that seeks to harmonize and reduce tariffs and establish regional policies on trade, customs, and methodology. However, SADC is delaying implementation of this protocol until 2010. The government aims to revive internal production before lowering its tariff barriers. In September 2004, the government announced reduced customs duties on imported goods and in December exempted businesses and individuals in the enclave of Cabinda from all customs duties. (These reductions and exemptions do not apply to the oil industry.) Angola has signed customs cooperation agreements with Portugal and São Tomé and Principe, and in December 2006 with Namibia. It is expected to sign others with South Africa and members of the Community of Portuguese Speaking States (CPLP). Angola is also currently negotiating customs agreements with and the Democratic Republic of Congo, both fellow SADC members.

According to the UN Conference on Trade and Development’s (UNCTAD) 2007 World Investment Report, Angola received US 12.9 billion in FDI in 2006. From 2000 to 2006, average annual inflows of FDI were $1.9 billion and FDI stock in 2006 stood at $10.99 billion, or 25.1% of GDP. The petroleum industry accounts for most FDI and amounts vary depending on the size and number of projects underway. Most of Angola’s FDI comes from the United States, followed by France and the Netherlands. FDI outflow and stock has been negligible. In 2006, FDI outflow from Angola was $93 million.

Angola also is a recipient of several lines of credit from the following countries: